The firm is partnering with Madrona Venture Partners, Notion Capital and Vertex Ventures to host this competition, which is looking for (very) early-stage AI startups in North America, Europe and Israel. The Innovate.AI competition will award $1M in funding to one startup per region (North America, Europe and Israel), in addition to a $500,000 "AI for Good" prize. All prizes also come with $500,000 in Azure credits (though there is no expectation that the participating startups use Azure).

Peggy Johnson, Microsoft's executive VP of business development, oversees the company's strategic investments through Microsoft Ventures. She told us that Microsoft typically invested into later-stage companies, but that Microsoft Ventures now gives it the ability to make early-stage investment, too. Some of the AI-centric investment by the fund include the likes of Bonsai.ai and Element.ai, as well as Maluuba, which Microsoft acquired earlier this year. She sees the fund as complementary to the Microsoft Accelerator program, which the company currently runs in a number of cities around the world. "Before the fund, we didn't have any way to invest into these companies," she noted.

So with this new competition, which Johnson tells me was an idea that came out of Madrona Ventures, Microsoft and its partners are looking for very early stage startups. "The idea behind the competition is that we want to see the earliest stage innovators -- maybe ones that didn't pop up yet on anyone's radar," Johnson said.

Like with similar competitions, Microsoft and its partners will gather applications from eligible startups, judge them based on the potential of their ideas and execution, and then pitch them against each other in a Battlefield-like pitch-off early next year (though Madrona managing director S. "Soma" Somasegar describes it as more akin to "American Idol"). To be eligible, the startups can't have raised more than $4 million in funding and they obviously need to be working on some kind of AI/ML-related problem.

As Johnson told me, if a company is aligned with any of Microsoft's own core focus areas, then that's a good early signal, too. The team is also looking for unique use cases that it can put early investments behind.

It's worth noting that this competition isn't about cash prizes. Instead, Microsoft and its partners will invest into these companies. Johnson tells me that the funding terms here are the same as for any other Microsoft Ventures investment.

The Innovate.ai competition is now open for applications and startups have until December 31 to apply.